Warner Music(WMG) - 2024 Q3 - Quarterly Results

Financial Highlights & Overview This section provides an executive summary of the company's financial performance and management's strategic commentary Q3 FY2024 Financial Highlights Warner Music Group reported a 1% revenue decrease, but a 14% net income increase to $141 million and 6% Adjusted OIBDA growth to $316 million in Q3 FY2024 Q3 FY2024 Key Financial Metrics (vs. Q3 FY2023) | Metric | Q3 2024 | Q3 2023 | % Change | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,554 M | $1,564 M | -1% | +1% | | Net Income | $141 M | $124 M | +14% | N/A | | Operating Income | $207 M | $189 M | +10% | N/A | | Adjusted OIBDA | $316 M | $297 M | +6% | +8% | | Cash from Operations | $188 M | $146 M | +29% | N/A | - The company reiterated its full-year guidance for operating cash flow conversion of 50-60%[1] Management Commentary Management attributed strong Q3 performance to subscription streaming growth, margin expansion, and disciplined cost management - CEO Robert Kyncl attributed strong Q3 subscription streaming growth to the performance of WMG's music and healthy industry trends[2] - CFO Bryan Castellani highlighted strong margin expansion and operating cash flow growth, crediting robust streaming performance and disciplined cost management[2] Consolidated Financial Performance This section details the company's overall financial results, including revenue, profitability, and cash flow Overall Performance Review Consolidated revenue decreased 0.6% to $1.554 billion, but operating income rose 9.5% to $207 million and Adjusted OIBDA increased 6.4% to $316 million, with margin expansion Consolidated Financial Results (Three Months Ended June 30) | Metric | 2024 (in millions) | 2023 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,554 | $1,564 | -1% | | Operating Income | $207 | $189 | 10% | | Adjusted OIBDA | $316 | $297 | 6% | | Net Income | $141 | $124 | 14% | - Revenue was negatively impacted by the BMG Termination ($26 million) and a Digital License Renewal ($3 million); excluding these, total revenue would have increased by 1.7%[4] - The increase in Adjusted OIBDA and its margin was primarily driven by strong operating performance and savings from the 2023 and Strategic Restructuring Plans[7] - Net income growth was supported by higher operating income, a prior-year loss on debt extinguishment, and lower income tax expense[8] Financial Position and Cash Flow The company reported $607 million in cash and $3.978 billion in total debt, with operating cash flow up 29% to $188 million and Free Cash Flow up 42% to $160 million - As of June 30, 2024, the company reported: - Cash and equivalents: $607 million - Total debt: $3.978 billion - Net debt: $3.371 billion[9] Q3 Cash Flow Performance (in millions) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Cash from Operations | $188 | $146 | +29% | | Capital Expenditures | $28 | $33 | -15% | | Free Cash Flow | $160 | $113 | +42% | Segment Performance This section provides a detailed breakdown of financial performance by the company's key business segments Recorded Music Recorded Music revenue declined 2.4% to $1.251 billion, despite digital revenue growth, while Adjusted OIBDA increased 6.4% to $281 million with margin expansion Recorded Music Q3 Performance (in millions) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,251 | $1,282 | -2% | | Operating Income | $230 | $207 | 11% | | Adjusted OIBDA | $281 | $264 | 6% | - Revenue decline was driven by decreases in artist services and expanded-rights (-27.1%), physical (-4.8%), and licensing (-2.2%), partially offset by growth in digital revenue (+4.3%)[12] - Subscription streaming revenue grew 7.0%, but ad-supported revenue declined 0.4%; adjusted for the BMG Termination and a Digital License Renewal, subscription revenue increased 12.1%[12] - Adjusted OIBDA and margin increased due to strong operating performance and savings from restructuring plans[13][14] Music Publishing Music Publishing revenue increased 7.8% to $305 million, driven by digital and performance, with Adjusted OIBDA rising 6.8% to $79 million Music Publishing Q3 Performance (in millions) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $305 | $283 | 8% | | Operating Income | $53 | $50 | 6% | | Adjusted OIBDA | $79 | $74 | 7% | Music Publishing Q3 Revenue Breakdown (in millions) | Revenue Stream | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Digital | $194 | $182 | +6.6% | | Performance | $52 | $40 | +30.0% | | Synchronization | $42 | $41 | +2.4% | | Mechanical | $13 | $16 | -18.8% | - Streaming revenue increased 7.9%; excluding the prior-year quarter's $7 million CRB Rate Benefit, streaming revenue grew 12.3%[17] Detailed Financial Statements & Reconciliations This section provides comprehensive financial statements and reconciliations of non-GAAP measures Condensed Consolidated Financial Statements This section presents unaudited condensed consolidated statements of operations, balance sheets, and cash flows for Q3 FY2024 Statement of Operations Q3 2024 revenues were $1.554 billion, with operating income increasing 10% to $207 million and net income rising 14% to $141 million Q3 2024 Statement of Operations Highlights (in millions) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Revenue | $1,554 | $1,564 | | Cost of revenue | $(830) | $(850) | | Operating income | $207 | $189 | | Income before income taxes | $171 | $167 | | Net income | $141 | $124 | | Diluted EPS (Class A/B) | $0.27 | $0.23 | Balance Sheet As of June 30, 2024, total assets were $8.830 billion, total liabilities $8.195 billion, and total equity increased 48% to $635 million Balance Sheet Highlights (in millions) | Account | June 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Cash and equivalents | $607 | $641 | | Total current assets | $2,483 | $2,402 | | Total assets | $8,830 | $8,545 | | Long-term debt | $3,978 | $3,964 | | Total liabilities | $8,195 | $8,115 | | Total equity | $635 | $430 | Statement of Cash Flows Net cash from operating activities increased 29% to $188 million in Q3 2024, with investing activities using $76 million and financing activities using $90 million Q3 Statement of Cash Flows (in millions) | Activity | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $188 | $146 | | Net cash used in investing activities | $(76) | $(53) | | Net cash used in financing activities | $(90) | $(90) | Digital Revenue Summary Total digital revenue grew 5% to $1.075 billion in Q3 2024, driven by a 6% increase in consolidated streaming revenue to $1.055 billion Q3 2024 Digital Revenue Breakdown (in millions) | Category | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Recorded Music | | | | | Subscription | $640 | $598 | +7% | | Ad-Supported | $223 | $224 | 0% | | Total Recorded Music Digital | $882 | $846 | +4% | | Music Publishing | | | | | Streaming | $192 | $178 | +8% | | Total Music Publishing Digital | $194 | $182 | +7% | | Consolidated Total Digital | $1,075 | $1,027 | +5% | Non-GAAP Financial Measures & Reconciliations This section defines and reconciles non-GAAP financial measures like Adjusted OIBDA and Free Cash Flow to U.S. GAAP equivalents - Adjusted OIBDA: Defined as operating income before depreciation and amortization, adjusted to exclude non-cash stock-based compensation and other items affecting comparability like restructuring costs[29] - Free Cash Flow: Defined as cash flow from operating activities less capital expenditures, used to evaluate cash available for debt service, investments, and shareholder returns[44] Q3 Reconciliation of Net Income to Adjusted OIBDA (in millions) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net income | $141 | $124 | | Add: Income tax expense | $30 | $43 | | Less: Other income, net | $(4) | $(20) | | Add: Interest expense, net | $40 | $38 | | Add: Loss on extinguishment of debt | $— | $4 | | Operating income | $207 | $189 | | Add: D&A expense | $80 | $86 | | OIBDA | $287 | $275 | | Add: Adjustments* | $29 | $22 | | Adjusted OIBDA | $316 | $297 | *Adjustments include restructuring, transformation costs, stock-based compensation, etc